What is 'EUR'?

EUR is the currency code used in the general industry to represent the euro, the official currency for 19 of the 28 members of the European Union (EU). There will be 27 countries in the EU when the United Kingdom leaves the union as a result of the Brexit referendum.  

The name "euro" was selected in 1995; the currency replaced the former European Currency Unit (ECU). It was introduced on January 1, 1999, and began circulating in 2002. The most commonly used euro coins are the 1, 2, 5, 10, 20 and 50 cent coins, and the most frequently used euro banknote denominations are 5, 10, 20, 50 and 100.

BREAKING DOWN 'EUR'

The euro is over seen by the European Central Bank (ECB), headquartered in Frankfurt, Germany, and the Eurozone member countries' central banks. Over 175 million people globally use currencies that are pegged to the euro. Other countries also peg their currency to the euro, including Bosnia and Herzegovina, Bulgaria, Cape Verde and Central Africa.

Criteria for Joining the Euro Area

In order to become a euro area member, the EU member states must fulfill what is called "convergence criteria" or "Maastricht criteria." These are economic and legal conditions that were agreed in the Maastricht Treaty in 1992. The Treaty does not specify a timetable for potential Member States to meet the conditions, and countries can do so according to their own needs.

Why Have the Euro?

The euro means that the region can operate using a single currency, which eliminates fluctuating exchange rates and exchange costs. A single currency simplifies cross-border trade and stabilizes economies as they grow. In addition, consumers have more choice. A common currency also encourages travel and tourism in other countries. At a global level, the euro provides the EU with more political clout because it represents all of its members; the euro is the second most important international currency after the U.S. dollar.

The Euro and Interest Rates

The ECB supervises monetary policy in the EU. The main goal of the ECB is to maintain price stability. The ECB also sets key interest rates for the euro area. Taxes are still levied by EU countries, and each country decides upon its own budget. National governments collaborate to create common public finance rules so that investment activities promote stability, growth and employment.

The  ECB sets the interest rates for the euro area such as the interest rate on the main refinancing operations (MRO), which provides liquidity to the banking system, the rate on the deposit facility, which banks use to make overnight deposits with the Eurosystem and marginal lending facility rate for overnight credit to euro banks.

 

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